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May 2014

May 2014

The IRS has a long history of challenging taxpayers that they believe are distorting income reporting by use of the cash method of accounting. They were at it again in a case involving a Texas cattle and horse breeding limited partnership that the IRS said was a tax shelter by virtue of being a “farming syndicate” and, therefore, was not entitled to use cash accounting. However, the court disagreed rather sternly.

In the farm and ranch sector, that alleged distortion often arises in the context of pre-payment for inputs such as fertilizer, seed, feed or chemicals. Various tests and rules have been adopted over the years to deal with material distortions of income when pre-purchases are involved. Read more.

After many Iowa Supreme Court decisions pounding into our heads that statutory notice of termination must always be given to terminate a farm lease, and after the Iowa legislature recently added another type of farm lease to the statutory notice requirement, the Iowa Court of Appeals said to forget all of that. The Court of Appeals, in a recent case where the required certified mail notice was not given, held that oral termination was good enough. While a request for rehearing has been filed, we don't expect the court to grant rehearing. We also don't expect the Iowa Supreme Court to take the case, if requested. If they do, we would be surprised if they overturned the Court of Appeals, even though the decision is out-of-step with past precedent. Read our in-depth article on the case.

Iowa Exclusion of Military Retirement Benefits

Governor Branstad is set to sign Senate File 303. The bill provides for the exclusion of military retirement benefits from Iowa individual income tax retroactive to the tax year beginning on or after January 1, 2014. The exclusion also applies to military survivor benefits received under 10 U.S.C. 1447. The exemption is available for both Iowa residents and nonresidents. The exemption is in addition to the general $6,000/$12,000 pension exclusion available for Iowa individual income tax for taxpayers 55 years of age or older. For example, if a married individual age 65 receives $20,000 in military retirement pay and $25,000 in pension income from John Deere, that individual will be able to exclude $32,000 ($20,000 plus $12,000) of pension income on their Iowa income tax return. Read more.

Should a Bypass Trust Be Used As An Estate Planning Tool For Clients?

A common estate planning strategy for martial estates where the couple’s potential combined taxable estates exceeds the exemption equivalent for one of the spouses is the bypass trust. The strategy involves balancing the estates in terms of value pre-death and then each spouse having a will that mirrors the other spouse’s will. The wills split each spouse’s property into two shares. One share is tied to the size of the applicable exclusion ($5.34 million for deaths in 2014) and is left in life estate form to the surviving spouse with a remainder to designated beneficiaries (typically children). Read more.

Digital Assets and Tax/Estate Planning

As if estate planning wasn’t difficult enough, digital assets now have to be factored into the mix for some clients. There are many digital currencies, but Bitcoin (a virtual store of value that functions as a medium of exchange) is the most prevalent. It has an equivalent value in real currency, and it’s value has fluctuated greatly recently. You can track it’s value at www.coinmarketcap.com. In late March, the IRS issued Notice 2014-21 which notifies the public how IRS will treat virtual currency as property for federal tax purposes. Read more.

Early Termination of Conservation Reserve Program (CRP) Contracts

One of the issues that we will be addressing at the CALT summer seminars concerns the tax issues associated with the early termination of a CRP contract. This has occurred with some CRP land in recent years. Some matters are set forth in the CRP contract itself, but many other issues associated with early termination require further thought. Paul Neiffer, CPA with CliftonLarsonAllen will be a part of our teaching teams. Here’s a summary of how he will break it down at the seminars: Read more.

New IRS Identity Verification Rules Have Generated Many Questions

The IRS has developed new Identity Verification Requirements for E-Filed returns in an attempt to combat identity theft. IRS Publication 1345 (April 2014) sets forth the procedures that a practitioner must follow to verify a client’s identity. The new requirement that tax professionals inspect valid governmental ID and record their findings for even in-person e-filed transactions has raised a number of questions and concerns. Read more.

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CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.